Astra settlement removes overhang

28th Mar 2011 07:06

A 13-year tax wrangle between the US and the UK involving drugs giant AstraZeneca has been resolved, resulting in a substantially lower tax rate for Astra in the current financial year.The two governments have agreed to the terms of an Advance Pricing Agreement regarding transfer pricing arrangements for AstraZeneca's US business for the 13-year period from 2002 to the end of 2014. At the same time, AstraZeneca has reached agreement with the US tax authorities on a related valuation matter arising from integration of its US businesses in 2000 following the global AstraZeneca merger in 1999.Following these agreements Asta now expects to pay a net amount of $1.1bn to resolve all US transfer pricing and related valuation matters for all periods from 2000 to the end of 2010. The payments arising from these agreements are expected to be made during 2011.Astra has known the resolution of these tax issues was on the cards for some times and has made provision for them in its accounts. AstraZeneca will release a portion of the provision related to these matters resulting in a benefit to earnings in the first quarter of around $0.5bn. This release will reduce the net accrual for transfer pricing and other international tax contingencies of $2.3bn.Over the course of the year the effect of the release of provisions and the settlement of tax issues will be that the tax charge for the current financial year will be around 6 percentage points lower than previously indicated, at around 21%.As a consequence, Astra has lifted its core earnings per share guidance for fiscal 2011 to $6.90 - $7.20 from $6.45 - $6.75 previously.Savvas Neophytou, an equity analyst at Panmure Gordon, said the settlement with the US tax authorities "removes a significant overhang and tidies up another liability."The broker is adjusting its forecast for statutory earnings per share (EPS) for the current financial year from $6.13 to $6.49. The forecast for "core" EPS from $6.87 to $7.23.- - jh